Axiome March update 2018

At the year ended December 2017 we reported that equity markets had closed on record highs, including in New Zealand and the United States. In the March quarter of 2018 we saw a reversal of fortune, with sell-offs in most equity markets, including in New Zealand, Australia, Developed and Emerging Markets.

Amongst the pack, Australia fared the worst returning around -4% for the quarter (in AUD terms).  This was not due to a mining sector downturn, but rather it reflected that the global sell-off coincided with more damning reports on Australian bank practices, with their excessive profits coming into the focus of regulators.

In contrast to the Australian equity market performance, Emerging Market equities were resilient, ending the quarter broadly flat.  This result is at odds with the common view that Emerging Markets are riskier than Developed Markets, and hence sell off more strongly in times of market stress.  Their resilience this time round likely reflects a very robust global economic environment, as discussed below.

The NZ equity market also fared reasonably well, though this was mainly due to the stellar performance of A2 Milk rather than the market broadly doing well (and in contrast it is notable that Fletcher Building had another woeful performance following a further earnings downgrade).